Qualcomm to Conduct Strategic Review, May Consider Breakup

Qualcomm Inc. is expected to conduct a sweeping strategic review that will look at the possibility of a breakup, among other options, after an activist investor pushed for change at the chip maker.

Qualcomm, the world's largest maker of chips used in mobile phones, may announce it is considering that and other options—including returning more cash to shareholders—when it reports fiscal third-quarter results Wednesday, according to people familiar with the matter. The company's plans are in flux and there is no guarantee it will make any such announcement then, the people cautioned.

The potential moves Qualcomm is expected to flag largely track suggestions the activist, Jana Partners LLC, has made since it revealed a stake of more than $2 billion in the San Diego company in April. Jana, an $11 billion New York hedge fund, has urged Qualcomm to explore a breakup, cut costs, repurchase shares faster and bring new blood to its board.

As part of its review, Qualcomm may also reshuffle its board and give Jana a say in adding independent directors, the people said.

A Qualcomm spokeswoman declined to comment, referring to the company's statement in April in which it said it looks at its corporate structure from time to time but that earlier reviews have concluded shareholders are better off with the current configuration.

Steve Mollenkopf, Qualcomm's chief executive, said around that time the company wasn't pleased with its financial outlook and had initiated a "comprehensive review" of its cost structure. He said the company would report on the initiative when its reports results this week.

Any breakup of the company would likely separate Qualcomm's chip-production business from its patent-licensing operation. The company, which has a market capitalization of $104 billion, gets about two-thirds of its roughly $26 billion in annual revenue from the chip business. But about two-thirds of its roughly $8 billion in yearly profit comes from royalties from the sale of smartphones that use technology it pioneered.

Should the company break up, it would be the latest technology giant to reshape itself amid lackluster results and disappointing share-price performance. This month, Hewlett-Packard Co. filed paperwork to split itself into two publicly traded companies. On Monday, PayPal Holdings Inc., formerly the online-payments arm of eBay Inc., began trading on its own.

Qualcomm has already taken steps to boost its stock price, which is down 14% this year. They include a $15 billion stock buyback announced in March, with $10 billion set to be repurchased in the next 12 months, a move Jana had called a good first step. Qualcomm stock fell by less than 1% on Monday to close at $63.79 on Nasdaq.

The company has forecast its per-share earnings for the quarter at 85 cents to $1, down from $1.44 a year earlier, and revenue between $5.4 billion and $6.2 billion, down from $6.8 billion—both below Wall Street expectations at the time.

The move to explore a wide range of options will likely be viewed as another successful activist push for Jana. Just weeks ago, food company ConAgra Inc. agreed to exit its struggling private-brands business, a move the hedge fund had advocated.

Qualcomm has seriously considered splitting into two for years, according to people familiar with the matter. About 15 years ago, the company announced a split and filed securities documents for the plan before scrapping it after signing several large licensing deals that eased concerns customers were growing wary of competing against both sides of Qualcomm.

While defending its current corporate structure, Qualcomm executives have said they regularly evaluate whether it makes sense to keep the chip and patent-licensing businesses together.

A proposed split would also come at a time of rapid consolidation among chip companies as they try to gain scale to better cope with rising semiconductor input costs.

So far this year, there have been $87.4 billion in announced semiconductor deals, according to Dealogic. That is more than the volume for any full year on record.

In early March, NXP Semiconductors NV agreed to buy Freescale Semiconductor Ltd. for $11.8 billion. Next, Avago Technologies Ltd. struck a $37 billion deal to buy Broadcom Corp.—the largest pure-technology deal ever. Then Intel Corp. agreed to purchase Altera Corp. for $16.7 billion.

Analysts at Arete Research Services LLP earlier this year said that a broken-up Qualcomm could enter the deal-making boom. The analysts estimated the chip-making business could have a market valuation of $74 billion, while the patent division could be valued at $87 billion and suggested an independent chip business could be attractive to suitors such as Intel.

Don Clark contributed to this article.

Write to Dana Mattioli at dana.mattioli@wsj.com and David Benoit at david.benoit@wsj.com

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